Operations Research: The Science of Better

1. Operations Research: The Science of Better Operations Research

2. What we do • Our accomplishments • Our mission • Our expertise • Our scope • Our approach • Our services Operations Research

3. Our accomplishments • [name of client/organization] • [business problem] • [O.R. solution] • [value we delivered] Operations Research

4. Our mission • Help you with the challenge of making complex decisions by: • Performing quantitative analysis that provides insight • Providing sensible options and recommending courses of action • Reducing risk • Improving the quality of recurring decisions Operations Research

5. Our mission (con’t) • Have a dramatic, positive impact on a project’s or organization’s value Operations Research

6. Our expertise • Business consulting • Modeling & analysis • Math modeling, simulation, decision support, data mining, optimization, revenue management, supply chain management, logistics, strategical analysis • Technical support, training Operations Research

7. Our scope • Serving any organizational unit, any function, any geographic area • Assistance from strategy through execution Operations Research

8. Our approach • Partner with management to frame and prioritize the issues • Focus on business impact and implementation • Establish a disciplined, consultative approach through teamwork and collaboration Operations Research

9. Our approach (con’t) • Build an objective, quantitative structure for analysis • Transfer technology to your organization so you can take over the project Operations Research

10. Our services • Strategic planning • Supply chain management • Pricing and revenue management • Logistics and site location • Simulation • Marketing research Operations Research

11. Our services (con’t) • Scheduling • Portfolio management • Inventory analysis • Forecasting • Sales analysis • Auctioning • Risk analysis Operations Research

12. A few words about operations research • What is it? • Conventional computing isn’t enough • Combinatorial explosion • The distinct nature of operations research Operations Research

13. O.R.: What is It? Operations research (O.R.) is the discipline of applying advanced analytical methods to help make better decisions Operations Research

14. Conventional computing is not enough • Cannot enumerate alternatives • Combinatorial explosion of viable options Never got outside the box “Few” alternatives Operations Research

15. Combinatorial explosion Example 1 • Problem: Find shortest path through 10 points • Assume a super-powered computer analyzes, quantifies, and compares a million alternatives every second • Answer is found in less than one second • Now find the shortest path through 20 points • Same computer would take over 39,000 years to solve Operations Research

16. Combinatorial explosion Example 2 • Construct a 5 stock portfolio out of 100 possible stocks • Evaluate for risk and return using same computer as Example 1 • Answer found in 1.25 minutes • Now diversify to 9 stocks • Answer found in 220 days • Now diversify to 10 stocks • Answer found in 5.5 years Operations Research

17. Distinct nature of O.R. • Applies leading-edge analysis • Can find the best among many choices, in reasonable time • Can consider and balance multiple objectives • Can help measure, control, and reduce risk Operations Research

18. O.R. success stories Representative cases from the annual INFORMS Edelman Competition 2002: Continental Airlines Survives 9/11 2001: Merrill Lynch Integrated Choice 2001: NBC Optimizes Ad Sales 2000: Ford Motor Prototype Vehicle Testing 1996: Procter & Gamble Supply Chain 1991: American Airlines Revolutionizes Pricing Operations Research

19. Case 1: Continental Airlines Survives 9/11 • The problem • Long before September 11, 2001, Continental asked how it could plan recovery from potential disasters such as massive weather delays Operations Research

20. Continental Airlines (con’t) • Strategic objectives and requirements • 1,400 daily flights • 5,000 pilots • 9,000 flight attendants • FAA regulations • Union contracts Operations Research

21. Continental Airlines (con’t) • The O.R. solution • Working together with an operations research consulting firm • Used an optimization model to generate optimal assignments of pilots and crews following a major disruption of service • Solution offers a system-wide view of the disrupted flight schedule and all available crew information Operations Research

22. Continental Airlines (con’t) • The value • Millions of dollars and thousands of hours saved for the airline and its passengers with each major disruption • After 9/11, Continental was the first airline to resume normal operations Operations Research

23. Case 2: Merrill Lynch Integrated Choice • The problem • Deal with the competitive threat of online investment firms • Without alienating financial advisors, undervaluing services, or incurring substantial revenue risk Operations Research

24. Merrill Lynch (con’t) • Objectives and requirements • Evaluate new products and pricing options • Evaluate options of online vs. traditional advisor-based services Operations Research

25. Merrill Lynch (con’t) • The solution • Merrill Lynch’s O.R. group simulated client-choice behavior, allowing it to: • Evaluate the total revenue at risk • Assess the impact of various pricing schedules • Analyze the bottom-line impact of introducing different online and offline investment choices Operations Research

26. Merrill Lynch (con’t) • The value • Introduced two new products garnering $83 billion ($22 billion in new assets) and produced $80 million in incremental revenue • Helped management identify and mitigate revenue risk of as much as $1 billion • Reassured financial advisors Operations Research

27. Case 3: NBC Optimizes Ad Sales • The problem • NBC sales staff had to manually develop sales plans for advertisers, a long and laborious process to balance the needs of NBC and its clients • The company also sought to improve the pricing of its ad slots as a way of boosting revenue Operations Research

28. NBC (con’t) • Objectives and requirements • Complete intricate sales plans • Reduce labor cost • Maximize income Operations Research

29. NBC (con’t) • The O.R. solution • Used optimization models to reduce labor time and • Used revenue management to improve pricing of its ad spots, which were viewed as a perishable commodity Operations Research

30. NBC (con’t) • The value • In their first four years, the systems • increased revenues by over $200 million • improved sales-force productivity • improved customer satisfaction Operations Research

31. Case 4: Ford Motor Prototype Vehicle Testing • The problem • Developing prototypes for new cars and modified products is enormously expensive • Sought to reduce costs on these unique, first-of-their-kind creations Operations Research

32. Ford (con’t) • Objectives and requirements • Needed to verify the designs of its vehicles and perform all necessary tests • Prototypes often sit idle awaiting various tests, so increasing their usage would offer clear benefits Operations Research

33. Ford (con’t) • The solution • Ford and an O.R. consulting firm developed a Prototype Optimization Model (POM) to reduce the number of prototype vehicles • The model determined an optimal set of vehicles that can be shared and used to satisfy all testing needs Operations Research

34. Ford (con’t) • The value • Ford reduced annual prototype costs by $250 million Operations Research

35. Case 5: Procter & Gamble Supply Chain • The problem • To ensure smart growth, P&G needed to • improve its supply chain • streamline work processes • drive out non-value-added costs • eliminate duplication Operations Research

36. Procter & Gamble (con’t) • Objectives and requirements • P&G recognized that there were potentially millions of feasible options for its 30 product strategy teams to consider • Executives needed sound analytical support to realize P&G’s goal within the tight, one-year deadline Operations Research

37. Procter & Gamble (con’t) • The solution • The P&G O.R. department and an O.R. consulting team created decision-making models and software. • Followed a modeling strategy of solving two easier-to-handle sub-problems: • Distribution/location • Product sourcing Operations Research

38. Procter & Gamble (con’t) • The value • The overall effort saved $200 million a year before tax • Allowed P&G to write off $1 billion in assets and transition costs Operations Research

39. Case 6: American Airlines Revolutionizes Pricing • The problem • To compete effectively in a fierce market, the company needed to “sell the right seats to the right customers at the right prices” Operations Research

40. American Airlines (con’t) • Objectives and requirements • Airline seats are a perishable commodity whose value varies • At times of scarcity they’re worth a premium • After flight departs, they’re worthless • The new system had to develop an approach to pricing while creating software that could accommodate millions of bookings, cancellations, and corrections Operations Research

41. American Airlines (con’t) • The solution • The team developed yield management (a.k.a. revenue management) and dynamic pricing • The model broke down the problem into three sub-problems: • Overbooking • Discount allocation • Traffic management • The forecasting and optimization models were embedded in a large revenue management system that interfaces with the reservation system Operations Research

42. American Airlines (con’t) • The value • In 1991, American Airlines estimated a benefit of $1.4 billion over the previous three years • Since then, yield management has been adopted by other airlines, hotels, car rentals, and cruises—resulting in billions of dollars in added profits Operations Research

43. Some important points • Differences between O.R. and IT • Keys to success • Conclusion Operations Research

44. IT Focuses on data as a corporate resource Stores, retrieves, formats, displays data Understands business processes and transactions O.R. Helps management select the best decision or set of decisions Applies analysis to convert data into useful information Works with management to help gain the deepest insights from analytical results Is typically embedded in an information system to provide recommended decisions or actions Differences between O.R. and IT Operations Research

45. Keys to success • Focuses on business impact and implementation • Improves decision processes while reducing risk • Helps operations become more efficient and effective • Establishes a disciplined, consultative approach • Transfers technology to your department so you can take over the project • Uses the appropriate analytical tools Operations Research

46. Conclusion • Operations research is the discipline of applying advanced analytical methods to help make better decisions • We collaborate easily with organizations like yours to achieve major goals • We can help you realize powerful benefits in dollars, time, productivity, customer satisfaction, marketshare, and more Operations Research